Is There Still Room for Growth in Levi's After Its 40% Rally in 2024?

If you are eyeing Levi Strauss stock and wondering whether now is the time to buy, hold, or cash out, you are in good company. Plenty of investors are taking a closer look, especially after the stock notched a 6.9% gain over the last week and climbed an impressive 40.0% so far in 2024. With the share price finishing at $24.38 most recently, these returns are catching attention. However, savvy investors know that past performance is just one piece of the puzzle.

Behind these moves, steady consumer demand for brand-name denim and recent tailwinds in the retail sector have helped boost optimism around Levi Strauss. The company’s track record is turning a few heads as well, given the stock’s 75.9% rise over the last five years. Of course, any discussion about what comes next has to tackle the question that matters most: what is Levi Strauss really worth right now?

On a valuation scorecard, Levi Strauss lands in the middle, notching 3 out of 6 possible checks for being undervalued. That suggests there is potential upside here, but also a few yellow flags worth examining.

Next, we will break down how the main valuation approaches rate Levi Strauss today and why a true verdict on value takes more than just running the numbers. Stay tuned for a better way to judge if the stock deserves a place in your portfolio.

Levi Strauss delivered 29.2% returns over the last year. See how this stacks up to the rest of the Luxury industry.

Approach 1: Levi Strauss Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates what a company is worth today by projecting its future cash flows and discounting them back to present value. For Levi Strauss, this approach uses both current and anticipated Free Cash Flow (FCF) as core inputs.

At present, Levi Strauss generates FCF of approximately $311 million. Over the next five years, analysts expect this figure to grow, with projections reaching $573 million by 2027. Simpler Wall St’s model extrapolates further ahead, estimating FCF could reach over $1 billion by 2035, with annual increases tapering off over time as growth moderates. All projections and reporting are denominated in US dollars.

Using these cash flow estimates, the DCF model arrives at an intrinsic value of $30.84 per share. This suggests that Levi Strauss stock is trading at a significant discount of about 21.0% compared to its recent closing price of $24.38. According to this DCF analysis, the shares appear undervalued and may offer upside for investors seeking value.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Levi Strauss.

Our Discounted Cash Flow (DCF) analysis suggests Levi Strauss is undervalued by 21.0%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Levi Strauss Price vs Earnings

The Price-to-Earnings (PE) ratio is often the preferred valuation metric for profitable companies because it connects a company’s share price to its actual earnings. For investors, a lower PE may signal a bargain, while a higher PE often reflects optimism about future growth, strong profitability, or lower perceived risk. What constitutes a “fair” PE ratio depends on a mix of these expectations and the sector the company operates in.

Levi Strauss currently trades at a PE ratio of 22.8x. For context, the average PE ratio for the Luxury industry sits at 21.5x, while its peer group’s average is a much loftier 46.8x. This highlights some variation among competitors. Instead of solely benchmarking against these numbers, Simply Wall St’s proprietary “Fair Ratio” methodology suggests a fair PE for Levi Strauss would be 22.7x. The Fair Ratio is a more tailored benchmark since it incorporates not just the company’s industry and market size, but also factors like projected earnings growth, profit margins, and company-specific risks.

Comparing Levi Strauss’s actual PE to the Fair Ratio, we see they are virtually the same. This implies the stock’s current valuation is right in line with what you would expect given its performance, outlook, and sector profile. It is neither unduly discounted nor stretched.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Levi Strauss Narrative

Earlier we mentioned there is an even better way to understand valuation, so let’s introduce you to Narratives. Narratives are an accessible yet powerful tool that lets you form your own investment story by connecting the facts about Levi Strauss’s business model, market changes, risks, and growth prospects to a full financial forecast, and ultimately, a fair value estimate. Unlike traditional analysis that stops at numbers, Narratives let you tie your personal view—what you believe will drive Levi Strauss’s future revenue, earnings, and profit margins—directly to how you value the stock.

You can easily create and explore Narratives on the Simply Wall St Community page, where millions of investors are using them to compare fair value estimates to the current price and decide if it’s time to buy or sell. Best of all, Narratives update dynamically as new results and news emerge, which means your investment thesis stays relevant and actionable. For example, some investors see international expansion and a focus on Direct-to-Consumer as a reason to value Levi Strauss at $28.00, while others highlight apparel risks and give it a fair value as low as $19.00. Narratives empower you to decide for yourself, based on up-to-date, real-world information.

Do you think there's more to the story for Levi Strauss? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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